i understand that im not the first person to ever connect the dots between bitcoin and deflationary spirals. i also understand that the standard argument OHNOES BITCOIN IS GUNNA DIE CUZ DEFLATION is completely misinformed.
the threads you have linked fully exhaust the discussion regarding this matter in the general. i will edit the title to focus on the points i wanted to discuss:
Watching the first major deflationary event in the bitcoin economy, have your feelings changed about its future? Did everyone fully expect the price to quadruple in half a year?
Will this kind of price behavior change the perception of bitcoin either way regarding the currency vs. store-of-value dichotomy?
and
How do you feel about the fact that most coins have not moved? Did you expect this because of the deflationary nature of Bitcoin? Do any of the previous arguments about why people will NOT hoard make less sense in light of the data?
the point is, there is new data to discuss. i apologize if i did not make that clear in the OP.
Topic: Bitcoin's first major deflation event, and its consequences - page 7. (Read 14121 times)
Are you suggesting that everyone, or at least the large holding early adopters, will not be altruistic enough to actually buy anything when their bitcoins are worth billions of dollars ...
of course not. im suggesting that due to the effects of runaway deflation, there will be no support economy to make bitcoins economically wise to spend. as such, the only thing the big fish can do really is to 'cash out' -- to take profit, and to leave all these people who are busy sucking up the "cheap" $20 coins holding the bag.
Not this again....
i apologize if this has been covered already. i've been completely dumbfounded by the behavior of the price as a speculator recently, and decided to reassess the fundamentals. do you at least agree that this is bitcoin's first significant deflation event? i have read the bitcoin wiki's counterargument to why a deflationary spiral is not possible, and i am still not at ease. could you restore my confidence in traders' long-term awareness?
Not this again....
Are you suggesting that everyone, or at least the large holding early adopters, will not be altruistic enough to actually buy anything when their bitcoins are worth billions of dollars so they will spiral up to trillions of dollars and still they will be so greedy and un-altruistic that they still will not spend any so it will spiral up to megatrillions and they still will not spend, gloating over their megatrillions while refusing to spend a satoshi of it?
Whatever happened to the theory that actually some forms of greed might lead to spending at least some of one's riches?
-MarkM-
Whatever happened to the theory that actually some forms of greed might lead to spending at least some of one's riches?
-MarkM-
So it seems that the bitcoin userbase has made a decision about the currency vs. store-of-value dichotomy and has overwhelmingly chose the latter.
A recent thread in the speculation forum seems to suggest that the common practice for most is to buy and hold (read: hoard).
while this is fine and dandy, and everyone can do with their bits as they please, it might have some unexpected consequences for bitcoin as a whole. one of these is a decreasing appeal as a currency. let's talk about the idea of a deflationary spiral:
the bitcoin wiki has a nice page describing how bitcoin is 'immune' to such a disaster, the reasoning being "Bitcoins only deflate in value when the Bitcoin Economy is growing."
there is no question that bitcoin has undergone (or is continuing to undergo) a massive deflationary period. this comes as no surprise because demand is rising and the total number of bitcoins, as everyone knows, is fixed.
let's talk about what isn't happening:
so what's going on? the bitcoin wiki swears that the bitcoin economy MUST BE GROWING in order for this massive deflation to occur. and the economy is growing, indeed, but which sector?
you see, just like the world economy, the 'financial' sector is about an order of magnitude larger than any real commerce. as evidence for this, i can point to that fact that more than 3/4 of the bitcoins that exist haven't moved much at all. this is troubling. if there are so many coins, where are the asks on mtgox? the answer: people are pulling them, skewing the supply, with the idea that hoarding will be very profitable as the slow and steady deflation pushes the price up, up, up.
this brings us back to a very important, and possibly dangerous, idea: the deflationary spiral. users are reluctant to sell their coins because of the idea of larger future worth (standard deflation), which causes them to hoard their coins which creates a feedback loop which increases the perceived value of the coins.
why is this dangerous? everyone knew deflation was built-in to bitcoin, anyway, right?
the problem is that if you are discouraged from spending your coins because you know they will be worth more in the future, the nash equilibrium is for everyone to hoard. this means no investments and subdued commerce. in other words, bitcoin turns into gold as we know it today. not a currency at all, but a store of value.
we are already seeing the effects of this. why invest in satoshidice shares when you'd be multiple times better off just holding onto the coins? even if you mean to purchase things with them and never convert to fiat, unless a large support economy exists the suppliers of the goods will have to convert to fiat to pay off their own costs. but the deflationary spiral disincentivizes the formation of this necessary support economy!
in other words, the bitcoin economy is growing. the "financial" sector is swelling like nothing we've seen before. and if it doesn't stop, we may never see bitcoin payment systems because they will simply not make sense.
even worse, the price as it stands today is much higher than it would be if 100% of the coins were in common trade. as it stands, less than 1/4 are. and now everyone is rushing to buy because they see the profits and protection of a deflationary store of value. so the game is to suck up as many coins as you can, and hold them forever? then what is the point? we've all been relying on the relative altruism of the early adopters and miners who are undoubtedly the owners of those large, quiet addresses. i'm rather afraid that some of them may be less altruistic than we believe.
i know that FUD is common when prices rise to unprecedented levels, but this is not speculation. this is a challenge to the economic fundamentals and goals of the project. i'm not saying that one of these big fish are going to cash out tomorrow, but as the price rises, the incentive for them to will only increase. is this a good direction for bitcoin?
edited for formatting
A recent thread in the speculation forum seems to suggest that the common practice for most is to buy and hold (read: hoard).
while this is fine and dandy, and everyone can do with their bits as they please, it might have some unexpected consequences for bitcoin as a whole. one of these is a decreasing appeal as a currency. let's talk about the idea of a deflationary spiral:
the bitcoin wiki has a nice page describing how bitcoin is 'immune' to such a disaster, the reasoning being "Bitcoins only deflate in value when the Bitcoin Economy is growing."
there is no question that bitcoin has undergone (or is continuing to undergo) a massive deflationary period. this comes as no surprise because demand is rising and the total number of bitcoins, as everyone knows, is fixed.
let's talk about what isn't happening:
- -it isn't about the block reward halving. everyone thought that that was already priced in, before it happened, in the rise from $5 to $10 in the early summer. i have reservations about whether or not that is really the case (the inflation rate decreasing by half doesn't mean that the value should double), but that aspect of the protocol must have been priced in already.
-it isn't about any major news either. the best candidate is the wordpress announcement, but the rally, again, started before and continued thereafter.
-it isn't about any new market opening up for bitcoin, either... the main drivers are still online gambling and the silk road.
-it also is not a bubble, as many have been saying. at the very least, we are not in bubble territory yet. there have been two large sell-offs that have let off a little steam while maintaining the upward momentum.
so what's going on? the bitcoin wiki swears that the bitcoin economy MUST BE GROWING in order for this massive deflation to occur. and the economy is growing, indeed, but which sector?
you see, just like the world economy, the 'financial' sector is about an order of magnitude larger than any real commerce. as evidence for this, i can point to that fact that more than 3/4 of the bitcoins that exist haven't moved much at all. this is troubling. if there are so many coins, where are the asks on mtgox? the answer: people are pulling them, skewing the supply, with the idea that hoarding will be very profitable as the slow and steady deflation pushes the price up, up, up.
this brings us back to a very important, and possibly dangerous, idea: the deflationary spiral. users are reluctant to sell their coins because of the idea of larger future worth (standard deflation), which causes them to hoard their coins which creates a feedback loop which increases the perceived value of the coins.
why is this dangerous? everyone knew deflation was built-in to bitcoin, anyway, right?
the problem is that if you are discouraged from spending your coins because you know they will be worth more in the future, the nash equilibrium is for everyone to hoard. this means no investments and subdued commerce. in other words, bitcoin turns into gold as we know it today. not a currency at all, but a store of value.
we are already seeing the effects of this. why invest in satoshidice shares when you'd be multiple times better off just holding onto the coins? even if you mean to purchase things with them and never convert to fiat, unless a large support economy exists the suppliers of the goods will have to convert to fiat to pay off their own costs. but the deflationary spiral disincentivizes the formation of this necessary support economy!
in other words, the bitcoin economy is growing. the "financial" sector is swelling like nothing we've seen before. and if it doesn't stop, we may never see bitcoin payment systems because they will simply not make sense.
even worse, the price as it stands today is much higher than it would be if 100% of the coins were in common trade. as it stands, less than 1/4 are. and now everyone is rushing to buy because they see the profits and protection of a deflationary store of value. so the game is to suck up as many coins as you can, and hold them forever? then what is the point? we've all been relying on the relative altruism of the early adopters and miners who are undoubtedly the owners of those large, quiet addresses. i'm rather afraid that some of them may be less altruistic than we believe.
i know that FUD is common when prices rise to unprecedented levels, but this is not speculation. this is a challenge to the economic fundamentals and goals of the project. i'm not saying that one of these big fish are going to cash out tomorrow, but as the price rises, the incentive for them to will only increase. is this a good direction for bitcoin?
edited for formatting
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